Question: (a) Calculate the free cash flow generated by a firm which has earnings before interest and taxes of 30m, has depreciated its fixed assets by 1m, has invested 10m in new fixed assets and 5m in working capital during 2019 when it paid corporate tax at 20%. Explain what you have assumed about the firms asset base. (b) During 2019 the firm in (a) generated revenue of 60m, its cost of goods sold was 20m and its selling, general and administrative costs were 10m. You anticipate that over the next five years revenue will grow at 5% each year, the cost of goods sold will continue to be a fixed percentage of revenue, but due to managerial efficiencies administrative costs will not change. All forms of investment, together with depreciation will have a consistent relationship with revenue. At the end of this five-year period you believe that free cash flow will grow at 2% each year. What is the company worth at the end of 2019, assuming that its weighted average cost of capital is 5%?

(c) How would the companys weighted average cost of capital and hence value change if it were to issue additional debt in order to repurchase equity? (d) Explain how you could value this company using multiples, and what assumptions you would have to make.